## Facts

- Linden Research, Inc. operated *Second Life*, an online virtual world in which users, through avatars, could acquire and trade virtual goods and “virtual land.”
- Linden publicly represented that users would retain intellectual property rights in user-created digital content, while governing participation through online Terms of Service (TOS).
- Marc Bragg, a Pennsylvania resident, used URL manipulation to acquire a parcel of virtual land at an unusually low price in a *Second Life* auction.
- Linden treated Bragg’s conduct as an improper manipulation of the auction process and a violation of the TOS.
- Linden froze Bragg’s account, confiscated associated virtual property, and denied him access to the platform and assets he valued at several thousand dollars.
- Bragg sued asserting claims including conversion, breach of contract, unjust enrichment, and consumer-protection-type theories.
- Defendants moved to dismiss for lack of personal jurisdiction and to compel arbitration under the TOS.

## Issues

1. Whether defendants had sufficient minimum contacts with Pennsylvania to support personal jurisdiction in a suit arising from a Pennsylvania user’s participation in an interactive online virtual world.
2. Whether the TOS’s mandatory arbitration provision was enforceable or unconscionable under the contract law specified by the TOS (California law).

## Decision

- The court denied the motion to dismiss for lack of personal jurisdiction.
- The court denied the motion to compel arbitration.
- The court held Linden was subject to personal jurisdiction in Pennsylvania based on purposeful forum-directed commercial activity connected to the dispute.
- The court held the TOS arbitration clause unconscionable (procedurally and substantively) under California law and therefore unenforceable.

## Legal Principles

- Personal jurisdiction may be exercised when an out-of-state operator of an interactive, commercial website purposefully directs activities toward the forum and the claims arise out of or relate to those forum-connected activities.
- Under California unconscionability doctrine, an arbitration clause is unenforceable when both procedural unconscionability (oppression/surprise in an adhesion contracting setting) and substantive unconscionability (overly harsh, one-sided terms) are present, though not necessarily in equal degree.
- Indicators of procedural unconscionability include nonnegotiable clickwrap terms, significant disparity in bargaining power, and unilateral modification or interpretive authority reserved to the drafter.
- Indicators of substantive unconscionability include cost and forum burdens that deter small-value claims, confidentiality provisions that structurally favor the repeat-player drafter, and remedial asymmetry that preserves the drafter’s access to courts while restricting the user to arbitration.
- A court may decline to sever offending terms and instead invalidate an arbitration clause in its entirety when the overall scheme is unduly one-sided.

## Conclusion

The court allowed the dispute to proceed in Pennsylvania, finding sufficient forum-related contacts from the operator’s commercial online activity, and refused to compel arbitration because the mandatory arbitration provisions in the online TOS were unconscionable under California law.


Bragg v. Linden Rsch., Inc., 487 F. Supp. 2d 593 (E.D. Pa. 2007)